Table of Contents
Introduction 1
Methodology 1
External Environment 2
PESTEL ANALYSIS 2
Porter’s Five Forces Analysis 4
Internal Analysis 6
VRIO Analysis 6
Business Strategy 8
Corporate Strategy 8
Recommendations 9
References 10
Introduction
In today’s business, strategic planning has become one of the key factors to guaranty the success of the companies regardless of their size and the sector that they provide their services. In the beginning we define strategy as an analysis of different factors and their relations about gaining competitive advantage in business. However, implementation of the strategy is much more important than itself regarding the major issues that might happen and end an organization’s life.
For this assignment I used Aston Martin Lagonda, the British luxury car manufacturer which was found in 1913, because of their exceptional performance after Dr. Andrew Palmer took the role of leading the company as the President and CEO of the group in 2014 and implemented his own strategy for the company which was called “Second Century”. Just in 2018 the company had 268% increase in brand value (Brand Finance, 2018) that represents their successful strategy and proper implementation for their planning.
Methodology
After gathering qualitative and quantitative data from multiple sources, I decided to use them for carrying out an analysis on external and internal aspects of the strategy of the company using common theories such as PESTEL, Porter’s Five Forces and VRIO, then the Second Century is discussed further by investigating into business strategy and the corporate strategy of Aston Martin which they present it in three phases of: Stabilization, Core Strengthening, Portfolio Expansion. And finally, we suggest a few recommendations concerning positive strategies.
External Environment
PESTEL ANALYSIS
Political
On June 23, 2016, British people voted to leave the European union in a referendum. This movement which was called Brexit had major effects on all car manufacturers in England since it had direct influence on many policies between England and European union including trade and environmental legislations. After quitting the European union, the British companies have to pay a 10% tariff for their products which are sold in Europe and the fact that 77.3% of the cars that are produced in UK are sold in the rest of European Union (PwC, 2016) and furthermore the domestic car production is reduced by 47% in 2017 which resembles significant amount of uncertainty in automotive industry in Britain (Bruce, 2018).
Economic
The +20% drop in the value of British Pound within the past 5 years (Live Foreign Exchange Rates, 2018) in comparison with Euros and Dollars has had both minus and positive effects on business conditions of the external environment of Aston Martin Lagonda because 3560 of 5098 cars that were made in 2017 were sold outside of UK. It means that although more costumers could buy the products with less cost for them, the company was also earning less profit on each product that was sold outside the borders and this resembles the critical importance of currency exchange ratios. However, the correct forecasting of market demands and trends lead the company to the best financial era of its life. The company has had 47.7% growth in revenue by exploiting the increase in market size of luxurious cars. Furthermore, the Group successfully completed replacing many contract loans from investors with better deals in order to increase the cash flow and revenue. For example, an offering of £550m equivalent of Senior Secured Notes (SSN) due 2022, with coupons of 6.50% and 5.75% on USD and GBP tranches respectively is now used instead of the former £304m 9.25% SSN and $165m 10.25% PIK Notes due 2018. As a result of the strong interest in the bond placement the Group was able to upsize issuance, generating an additional liquidity and strengthening the statement of financial position (Aston Martin Lagonda a, 2017).
Socio-Cultural
Many factors in this aspect had considerable effect on company’s strategy to achieve a sustainable luxury business. For instance, the increase in High Net Worth Individual (HNWI) population around the world particularly in Asia pacific and Middle east has created a sustainable growth for the demand of any luxurious product. Furthermore, the decision to expand the operations from manufacturing high end luxurious sport cars to collaborations with other expensive product producers like TAG Heuer watches, Hacket London clothing company, Quin Tessence Yachts, Triton Submarines and … led to a notable profit record in the history of the company (Aston Martin Lagonda, 2017; Aston Martin Lagonda, 2018).
Technology
With emergence of hybrid and fully electric cars in the automotive industry, many of the former successful companies in this business are losing their market to the new high-tech companies just because the cost of change procedure for their factories and training the staff for the new jobs is high and the new companies can start without any sunk cost in former production lines. But, the strong reputation of the company in automobile racing and producing high performance parts and the fact that Aston Martin has only one factory were two of the many reasons that the engineering and production team didn’t have difficulties to keep up with the advancements in technology.
Environment
The global increase in price of the energy and the new environmental laws that require companies to work greener and produce greener products are two considerable environmental factors that had major impact on the performance and the goal of Aston Martin. Environmental forces combined with technology advancements are the key initiatives for concentrating on electric models for the future.
Legal
One of the most important aspects of growth in a company that is expanding its operations from a manufacturing a specific product to consultation business and many other sectors is to be aware of the legal requirements and limitations such as international laws of business for raw materials in the supply chain management or different sales rights in multiple regions around the world.
Porter’s Five Forces Analysis
Porter’s five forces analysis measures the threat that is imposed on a company and its business in 5 different categories which are described below:
Threat of Entry: Low
Manufacturing luxury cars is a completely different process than of the mass production ones and relies heavily on the craftmanship of the staff, overall design, costumer’s demands and the price of the materials and machines which is much higher for manufacturing high-end and luxury products than for the regular models which means their economies of scale is tailored to the size of their market and most of their cost advantage is secure because the heritage of the company is one of the main reasons that persuades their customers to buy Aston Martin (Roebuck, 2018).
Threat of Rivalry: High
Currently in the luxury segment of the automotive industry there are many brands competing with each other and with the daily increase in demand for such cars companies are competing more than ever for larger shares of market. For instance, Bentley and Rolls-Royce in UK concentrate on the design, quality and the character of the car and each one has introduced its SUV model, Maserati and Lamborghini in Italy whose focus is famously known for performance also have unveiled their SUVs, new Chinese brands like Lync and Co has introduced their flagship products which are completely electric powered and many other mass production factories like BMW, Mercedes Benz, Porsche and … are providing their costumers hundreds of new features to select from custom sewing and massagers for the seats to high-tech carbon fiber body kits. These factors make the luxurious automotive industry a highly competitive business which usually the names fade rather than emerge.
Threat of Substitutes: Moderate
Regarding financial aspects the average selling price for an Aston Martin is 170,000 Euros (Aston Martin, 2017) which can easily be spent on many other luxurious products in transportation sector like motorcycles, classic cars, small airplanes and… also, according to the CEO himself, the whole process of buying an Aston Martin is an emotional announcement to state someone’s personality, wealth, values and … which results in higher importance of settling the brand image among buyers and improving the customer loyalty to prevent substitutions (Roebuck, 2018).
Threat of Powerful Suppliers: Moderate
The raw materials used in luxury cars is much different than of the regular cars, for example the considerable use of carbon fiber, wood, titanium and many other expensive and complex to access materials in luxury cars is not relevant for manufacturing mass production cars so the suppliers can increase their prices. However, with the daily advancements in technology the cost of preparing rare raw material like custom produced chips for computers in the car and the raw metals used in many parts of the vehicle is becoming cheaper and also the “Responsible Procurement Guide” of the company which has been implemented since 2012 and the second edition of that which was used later in 2017, has helped them to have a disciplined and sustainable access to different resources so the threat of powerful suppliers is at a moderate level (Aston Martin, 2017).
Threat of Powerful Buyers: Low
Although the customers who buy such expensive cars can be assumed as powerful buyers because usually they can afford to buy more than usual, buyers power is not a source of threat for the company because nearly all their cars have a limitation for volume in production for example One-77 the model that 77 of it was made, DB4-GT which they will make 25 units, DB10 which was only made for James Bond movie and many other models are limited edition products that each one is sold to a specific costumer.
Internal Analysis
An internal analysis helps to exploit the capability of the company to create competitive advantage and get a deeper knowledge about strengths and weaknesses inside the company. Aston Martin’s internal environment is analyzed using the VRIO approach which gives us a comparative overlook of inside the company (Zynga, 2018).
Value
Creating added value in luxurious products is a costly and complex process because a manufacturer cannot improve the quality of raw materials after they have reached their performance limit. More importantly, a luxury car is not different in purpose with a cheap car but it is the matter of design language, quality, purpose of use and many other factors that makes the car more valuable comparing to others (Roebuck, 2018), So the designing team and production line must have more effort to meet the demands of customers who want their products to be more individual.
Rarity
A notable amount of rare parts and materials is needed in order to build a luxurious car such as: Expensive metals like aluminum and titanium to use in chassis, Carbon fiber panels for body which can only be produced in high-tech factories, Many of the decoration parts for the interior of the car like clocks and handles are custom designed and built specifically for a particular model which makes it harder to use the current available recourses.
Imitability
The cost for imitation of Aston Martin’s operations is rather considered high because of many factors such as: the intangible resources of the company like their reputation and brand image and the language of design that they use is not imitable, also like many other companies that are active in this business they have a notable number of patents which makes it harder for the new competitors to enter their market. Also, Aston Martins are designed with attention and intention to make them special and recognizable within a vice for example the engine revs and speedometer in an Aston martin turn counter clockwise instead of the usual clockwise.
Organization
After the implementation of the new strategy of the company the whole company’s focus for reaching an efficient organization was to operate in a single way of working together as a team with the same goal of being the great British car company that produces the most beautiful automotive art. Also, the loyalty among the employees tend to be very high (Roebuck, 2018) which means that the organization can exploit their recourses without significant effort.
To conclude this section it is notable that since the company has a good score in the value creation and the rarity of their resources is well managed, and imitability of their products is hard and the employees are well managed and the flow of innovation and daily activities does not have large obstacles in its way, we can perceive that Aston Martin can continue to be successful in creating competitive advantage in the luxury business.
Business Strategy
The business strategy of the new CEO was product differentiation. As they mention in their motto that they want to be the company that delivers the most beautiful cars in the market it was essential for them to increase their visual differentiation in the products in a way that it is easily distinguishable from any other car (Aston Martin, 2017). Furthermore, with the expansion of their business from selling luxury cars to providing engineering services and fashion goods they had to become familiar with different ways of customization which is one the most important factors of a luxury product. Regarding that, Aston Martin started introducing different cars in multiple segments in addition to the new personalization options. For example, the introduction of Valkyrie their flagship of performance, DB11 the nostalgic yet innovative grand tourer, RapidE the all-electric model to start the transition to electric motors and the upcoming SUV model are the considerable acts of the company to expand their portfolio of cars in a rational way because each one of the new products aims for a different sector of the market. Also, the firm’s collaborations with other brands and the aforementioned reason of expanding its operations to other businesses had a significant impact on the success of the new strategy because they brought a notable amount of money into the company which could be spent for various purposes such as building the new factory, research and development and … (Aston Martin, 2017; Roebuck, 2018).
Corporate Strategy
With attention to the population of high net worth individuals in the world we can perceive that it is not rational for a luxury company to have vertical integrations because the number of products or resources that require operations is not high enough to make the vertical integration feasible. However, expanding the operations into other businesses helped the company to reach a sustainable growth rate. Although the company is now building watches in collaboration with TAG Heuer, they provide engines and designing services for yachts, introduced their line of fashion clothes and many other businesses, all of them are connected to each other and they serve the demands of rich people. This helps the company to inquire a thorough understanding of their costumer needs and behaviors in different products and also maintains the continuous flow of innovation and improvements in quality. Furthermore on this subject it is important to know that although Aston Martin is the only independent luxury car manufacturer in the world but it has gone bankrupt for 7 times in its history (Roebuck, 2018). and after the horizontal expansion of their operations and gathering all of the subsidiary companies and collaborations under one brand of Aston Martin Lagonda Group, they could set a record for the fastest growing brand in 2018 (Brand Finance, 2018).
Recommendations
The second Century strategy has proved to be successful so far so we like to point out a few of the key factors that helped to achieve the goals. First, dividing the strategy to 3 different phases of stabilization of the chaotic conditions of the company and then focusing on improving the of core strengths within the company and then expanding the portfolio of the products was a logical plan to help the company to reduce the costs and exploit from potential profits that they received later by expanding their business from luxury cars to luxury business. Second, the duration for every phase is not designed to be as short as possible, but it is planned in a way to keep the profits and capital of the company in a sustainable growth by introducing separate products in different segments each year to spend the profits on other sectors and segments that have financial needs. And finally, as it has become a trend in nearly all industries it is recommended for the companies that produce products that rely on their brand and intangible value to collaborate with other companies which are active in that sector of the market to increase the innovation and profits.
References
Aston Martin Lagonda. (2018). The Sustainability Report of 2017. 8-48. Gaydon: Aston Martin Lagonda Group. Available at: https://amlcorp.blob.core.windows.net/default-storage/docs/default-source/documents/sustainability/annual-sustainability-report-2017.pdf?sfvrsn=104bfcc2_2
Aston Martin Lagonda. (2018). Full Year 2017 Financial Results. 3-29. Gaydon: Aston Martin Lagonda Group. Available at: https://amlcorp.blob.core.windows.net/default-storage/docs/default-source/documents/financial-releases-and-presentations/2017/aston-martin-q4-amp-full-year-2017-results-presentation.pdf?sfvrsn=3317d588_2
Aston Martin Purchasing and Quality. (2016). Responsible Procurement Guide. 1-4. Gaydon: Aston Martin Lagonda Group. Available at: https://amlcorp.blob.core.windows.net/default-storage/docs/default-source/documents/sustainability/aston-martin-responsible-procurement-guide-issue-2-2016.pdf?sfvrsn=d4dead22_2
Brand Finance. (2018). The top 100 most valuable automobile brands of 2018. Brand Finance. Available at: http://brandirectory.com/league_tables/table/auto-100-2018
Bruce, A. (2018). No deal Brexit is not an option, Britain’s car industry warns. Reuters. Available at: https://www.reuters.com/article/uk-britain-eu-autos/no-deal-brexit-is-not-an-option-britains-car-industry-warns-idUSKBN1KK2JD
Live Foreign Exchange Rates. (2018). Available at: https://www.currencies.co.uk/live-exchangerates/
PwC. (2016). The Impact of Brexit on Automotive industry. PwC. Available at: https://www.pwc.nl/nl/brexit/documents/pwc-brexit-monitor-impact-on-the-automotive-sector.pdf
Roebuck, C. (2018). Perspectives from the top : Dr Andy Palmer CEO Aston Martin – 2nd Century Plan [Video]. Available at: https://www.youtube.com/watch?v=3HUr9uu2U6w
Zynga, A. (2018). Strategy and Planning. Lecture, MSM. Maastricht, the Netherlands.